Why Buying New Has Become an Automotive Rarity
Let’s face it, we can all envisage those streets where the driveways are all lined with new, shiny cars, and if we thought about it for long enough it could get us down.
When the hypothetical family from number 28 parade the street in their new Mercedes GLE, doing somewhat of a victory lap, Google is just seconds away as we scout our next big purchase.
Driving the car of our dreams just isn’t a feasible option for many, due to the reality of things like family life and other important household costs. But, as John Paul Getty once remarked, “if it appreciates, buy it. If it depreciates, lease it.” Many throughout the UK have taken the once-oil tycoon’s advice and done just that.
It’s a well-known fact that the value of a new car is known to drop massively within the first year, and research from AA suggests that after three years, a car will have lost 60% of its original showroom price tag at an average of 10,000 miles per year. The first-year loss is definitely the worst, with a deduction of around 40% being made by the end of the first 365 days. Obviously, there are different ways of putting the brakes on depreciation. Keeping the car clean, regular servicing in accordance with manufacturer’s guidelines, and one eye on the mileage gauge, will all go a long way in reducing potential losses.
But could we be doing something different?
An impressive 78% of buyers nowadays opt for a personal contract purchase (PCP), proving itself as an increasingly popular finance option. Admittedly, it goes against everything our parents have told us to do, in regard to owning our own car, but if you can battle those initial demons, then we’re here to show you why this might be for you.
Some people take pride in saving up in advance to buy a new car, like the Mercedes A Class, but not all of us have the time (or or patience!). With PCP, the payment is broken down into three major chunks. Firstly, you’ve got the initial deposit which is usually 10% of the car’s showroom value. Secondly, the monthly payments which will include enough to cover the depreciation costs incurred throughout the contract. Finally — and this is where things change once the final payment of the contract has been made, you get the option to either return the car or take a new one on a new contract. Or, you can pay a balloon payment and then the car is yours.
The monthly repayments of a PCP contract are significantly less than the alternative finance deals available. The option then presents itself is to drive a car that you would initially have deemed to be significantly out of your price range. Therefore, if you don’t have a big deposit and want lower monthly repayments, then this might be exactly what you’re after.
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Heavy traffic, congestion charges and the worst culprit of all — parking. Three reasons many drivers in the UK have steered away from the daily commute in the car and opted for public transport. A decade ago, our decision when purchasing a car will have depended hugely on our day-to-day usage — but when that isn’t the same, why should the choice be?
On average the annual mileage of a car in the UK is 7,900. One drawback of renting your car through PCP is that is that when initially taking out the contract, you are given a mileage restriction and if you exceed this, you will be penalised. If, however, you would consider yourself to be one of those average UK drivers, then PCP offers no qualms. The opportunity to purchase a new contract once your current one is up means you aren’t going to have spent your days driving around in an old car with high mileage.
The freedom that comes with PCP means that if you wanted to, you could buy a weekend car — unless of course you are using it to commute every day. When purchasing a new car outright, you are restricted by the constant reminder that you will have this car for the foreseeable future. With PCP, you can buy the car that caters exactly to the needs of your evenings and weekends. For example, an SUV if you go camping with the kids most weekends throughout the summer, or a two-door roadster, if your Sundays are filled by coastal runs. And, if your circumstances do change, you can simply exchange the car.
PCP agreements have revitalised the UK car market, as budgets grow increasingly tighter and people are constantly on the lookout for a good deal. For the past three years, the number of new car sales in the UK has stayed above 2.5million units per year, in comparison to 2011 when it was only 1.9million.
Top tier brands such as Audi, Mercedes, BMW and Jaguar Land Rover have all performed well under the system. This is due to the fact these cars hold their value better, and therefore depreciation is less, ultimately benefiting both dealer and driver. Mercedes reported a 100% upturn in UK sales since 2010.
A typical customer could be paying anywhere in the region of £100 upwards for lifestyle costs such as their phone bill and gym membership, so if dealerships are able to offer a vehicle at £99 a month, then they are making the cost seem more realistic for their customers — it’s near enough a no brainer!